|
January 31, 2010
China Is Bubbling
It looks like real estate in China is going through a massive bubble. It is still on the upswing side. We don't really have a view on when it will end; [but] we do have a view that this is a bubble. Real estate is very much driven by government policy. This year we have RMB 4 trillion through the stimulus package, another RMB 6 trillion from municipal bonds, another RMB 10 trillion from bank loans. We have RMB 20 trillion in the system and it all finds its way to real estate. If the government next year decides to continue the relaxed monetary policy the market will continue like this, regardless of whether this is wasteful investment or not -- people will still buy and we will still be building and selling.And how much is that worth In $US? Not to detract from her point, but I should note that I tally the total influx of funds somewhat differently. I think she is double-counting the RMB 4 trillion government stimulus, which was funded half by bank lending and half by municipal bonds. The combined figure, as I calculate it, is more like RMB 16 trillion, or US$2.4 trillion.So how much is that in US dollars? BEIJING -- China's economy expanded by 6.1 percent year-on-year in the first quarter of 2009, official data showed Thursday.Since the numbers are never as precise as the figures show, let us say that it is $3.8 trillion. And a $2.4 trillion stimulus represents 63% of the GDP. That is a lot. The Chinese can pay for most of it in cash. But that leaves them vulnerable to the next shock in the market place. So how about an anecdote? Here is one from March 2009. Today I visited Beijing's most stunningly dysfunctional, catastrophic mall, called The Place, and all I could think about was what I wrote back in 2006. Made to look kind of like Versailles on the outside, The Place is an irrational maze of stores and eateries that seems to have been designed to turn off and turn away customers. It has stairways that lead nowhere, unmarked elevators that take you to surprising places, not to mention a generally chintzy feeling created by all the faux marble and Grecian columns; it always looked pompous, but now it's looking seedy and run-down as well.The author has some ideas on why it got so bad. I told them this was coming 2.5 years ago and no one listened. The day of reckoning, the moment of truth is here. Even if things pick up, these malls are hopeless. Like the Mandarin Oriental, they will need to be razed and replaced with something useful, like affordable middle class housing (wishful thinking on my part). If not, Beijing could become a city pockmarked with looming dinosaurs, huge husks of once breathtaking buildings, now vacant and decaying, like so many of the Olympic structures.The government in China is doing the same thing the government of the US is doing. Trying to reflate the bubble instead of marking down assets to their real value. It will end badly. In the US and China. Given that the real volatility of the Chinese political system is far in excess of the volatility in the US and we in the US have the safety valve of local, State, and National elections with a range of policies to choose from (Texas or California?), I think there will be a LOT of political upheaval in China in the years to come. They will be so caught up with domestic problems that their opportunities for international mischief such as the current uproar over arms sales by the US to Taiwan will be limited. OTOH they could do what governments the world over do when domestic trouble is serious. Start foreign adventures. Will China go down (for a while) quietly? Or will they make a fuss? Stay tuned. And another thing. When China crashes it will put a LOT of downward pressure on the price of oil. Unless they go in for oil adventurism. Cross Posted at Power and Control posted by Simon on 01.31.10 at 05:48 PM |
|
February 2010
WORLD-WIDE CALENDAR
Search the Site
E-mail
Classics To Go
Archives
January 2010
December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 October 2004 September 2004 August 2004 July 2004 June 2004 May 2004 April 2004 March 2004 February 2004 January 2004 December 2003 November 2003 October 2003 September 2003 August 2003 July 2003 June 2003 May 2003 May 2002 AB 1634 MBAPBSAAGOP Skepticism See more archives here Old (Blogspot) archives
Recent Entries
Now they threaten to withhold sex? How small of them!
Tea Party Coordination China Is Bubbling Exploring a minor issue in "religious" detail Smoke and Mirrors (A Rube Awakening) Let's Talk About Political Correctness! A Solar Powered Government left wing fat cat corporatist fesses up (and tugs at conservative heart strings) An Economics Rap Postmodern Robotics
Links
Site Credits
|
|